DairyNZ estimates 85% of dairy farmers will lose money this season as Fonterra cuts forecast payout

Thursday 28th January 2016

DairyNZ estimates 85 percent of dairy farmers will post a loss this season with global milk prices taking longer than expected to recover to sustainable levels.

Fonterra Cooperative Group this morning cut its forecast milk payout for this season to $4.15 per kilogram of milk solids from a previous estimate of $4.60/kgMS as global milk supplies continue to outweigh demand.

DairyNZ chief executive Tim Mackie said the on-farm cash income of farmers from all milk production this season will be under $4/kgMS as a result of today’s news because some extra payments for this season are shifting out of the 2015/16 season into the next. Very little was carried over from the previous season.

“This will have ongoing effects on farmers’ cashflows, their business equity, and their ability to keep managing debt,” Mackie said. “The reduced milk price announcement today means our industry is facing a reduction in dairy revenues by around $800 million.”

That means $67,000 less in cash revenue for the average farm producing 150,000 kgMS.

Mackie said hard calls will need to be made but dairy farmers were resourceful and have been taking significant action to manage the last two seasons.

Some farmers are looking for off-farm income opportunities and are investigating all their options, with banks a part of those conversations, he said.

Fonterra Shareholders’ Council chairman Duncan Coull said although the milk price was largely out of the cooperative’s control, farmers were looking to the board to communicate any significant price fluctuations throughout the season in a timely manner.

“Our farmers will be expecting our cooperative model, which sees shareholders benefit from milk price and the value-add side of the business, to deliver for them in terms of the total available payout,” he said.

The forecast milk payout when combined with the earnings per share range of 45-55 cents, means a total available payout of $4.60-$4.70/kgMS, equating to a forecast cash payout of $4.50-$4.55/kgMS after retentions, Fonterra said.

This season’s outlook turned more pessimistic after prices fell at a second successive GlobalDairyTrade auction this month.

Fonterra had said its previous forecast depended on global dairy prices rising in the first half of this year but it is now expecting it will be later this year before they improve.

DairyNZ’s Mackie said on a positive note, production and homegrown feed supply has been good this summer with El Nino not as severe as some predicted. Reasonable rain in December and January has bolstered pasture and crop growth.

Milk production was down 2.6 percent on last season at the end of December.

Mackie said it was positive that dairy companies have provided new forecasts in January so farmers can make important decisions early, such as adjusting stock rates, drying off and preparing for the next season.

DairyNZ is holding well-being workshops from mid next month in partnership with the Ministry for Primary Industries and rural support trusts have also been boosted due to extra government and industry funding.

BusinessDesk.co.nz

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